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Spiceland_Inter_Accounting8e_Ch15

CHAPTER 15 Leases 875 Notice, too, that the timing of the $60,000 payment is December 31, 2021, the end of the lease term. Remember, the final periodic cash payment on December 31, 2020, is at the beginning of the final year. The journal entries that accompany this final cash payment are shown in Illustration 15–12D . Sales revenue $479,079 2 COGS 300,000 Dealer’s profit $179,079 The lessor’s minimum lease payments include a residual value only if it is guaranteed (by either the lessee or a third-party guarantor). At December 31, 2021, the lessee’s book value, sometimes called carrying value or carrying amount, of the fully depreciated equipment is its $60,000 estimated residual value. If we assume that the actual residual value also is at least $60,000, then the lessee is not obligated to pay cash in addition to returning the equipment to the lessor (demonstrated in Illustration 15–12E) . 23 However, if we assume that the actual residual value at December 31, 2021, is only $25,000, then the lessee is required to pay $35,000 cash to the lessor in addition to returning the equipment. The lessee records this payment as a loss. 24 23 If the actual value is more than the guaranteed residual value, the lessor may realize a gain if and when the asset subsequently is sold. Alternatively, the lessee could sell the asset, make the required $60,000 payment to the lessor, and realize the gain. Regardless, the potential gain does not affect the entries at the end of the lease term. 24 Sometimes by mutual agreement the lessee will sell the leased asset at the end of the lease term and remit the proceeds (plus any deficiency under the guarantee) to the lessor. Sales-Type Lease, January 1, 2016 Sans Serif Publishers, Inc. (Lessee) Leased equipment (present value of lease payments) .......................... 479,079 Lease payable (present value of lease payments) ............................ 479,079 CompuDec Corporation (Lessor) Lease receivable (present value of minimum lease payments * ) ............ 479,079 Cost of goods sold (lessor’s cost) ........................................................ 300,000 Sales revenue (present value of minimum lease payments * ) ............ 479,079 Inventory of equipment (lessor’s cost) ............................................ 300,000 First Lease Payment, January 1, 2016 Sans Serif Publishers, Inc. (Lessee) Lease payable ..................................................................................... 92,931 Cash ............................................................................................... 92,931 CompuDec Corporation (Lessor) Cash .................................................................................................... 92,931 Lease receivable ............................................................................ 92,931 *Minimum lease payments include the $60,000 residual value because it’s guaranteed. Illustration 15–12C Sales-Type Lease with Guaranteed Residual Value The residual value reduces the asset’s depreciable cost to $419,079. As the outstanding balance becomes less toward the end of the lease term, the portion of each payment that represents interest also becomes less. December 31, 2020 Sans Serif Publishers, Inc. (Lessee) Depreciation expense ($479,079 2 60,000) *  ÷ 6  years ..................... 69,847 Accumulated depreciation ............................................................ 69,847 Interest expense (10% 3 outstanding balance) .................................... 13,407 Lease payable (difference) .................................................................. 79,524 Cash (lease payment) ...................................................................... 92,931 CompuDec Corporation (Lessor) Cash (lease payment) ........................................................................... 92,931 Lease receivable ............................................................................ 79,524 Interest revenue (10% 3 outstanding balance) ............................... 13,407 *The depreciable cost is reduced by the lessee-guaranteed residual value. Illustration 15–12D Entries to Accompany Final Periodic Payment


Spiceland_Inter_Accounting8e_Ch15
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